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A New Genre on Wall St.: Bailout Blog

I was reading this on the train today and found it's really interesting. If you look past the Bear Stearns/Richard Marin episode, the article provides really good information about BS, its business, how Wall Street works, etc which are valuable to people new to the industry (aka myself)

By JULIE CRESWELL
Published: June 28, 2007

Over the weekend of June 17, executives at Bear Stearns scrambled to avert the collapse of two hedge funds.

Officers at other Wall Street banks that had provided billions of dollars in loans to the funds began to question why Bear Stearns was not stepping in to bail them out.

In the midst of the turmoil, Richard Marin, the head of the Bear unit that ran the troubled funds, “stole away” from the “crisis-hedge-fund-salvation-workaholic weekend” to see the new Kevin Costner thriller “Mr. Brooks.”

His advice on the film?

Take a “pass,” Mr. Marin wrote in a review he posted that day on his blog, whimofiron.blogspot.com.

“I had been working 24-7 on this thing. Taking a small amount of time to clear my head seemed reasonable,” Mr. Marin said yesterday. The blog was personal, he said, intended for his friends and family. It let him talk about movies, life on Wall Street and his efforts to lose weight.

Still, the episode — and Mr. Marin’s blog — offer some insight into Bear’s response to the near collapse of the funds. An embarrassing hit to the bank’s reputation, the incident has forced Bear to pledge up to $1.6 billion in secured loans to bail out one of the hedge funds. It is not providing any financing for the second, much more heavily leveraged fund, which was started in August and has suffered much bigger losses.

But Bear Stearns’s troubles are far from over. The Securities and Exchange Commission has started an informal inquiry into issues surrounding the Bear hedge funds and how the industry is valuing mortgage-related securities like those that Bear holds.

In addition, Bear Stearns has temporarily shifted its top mortgage trader, Thomas Marano, over to the unit, Bear Stearns Asset Management, to help with the funds, say people who were briefed but were not authorized to speak for attribution. They added, however, that assets in the two funds have already been reduced by 90 percent through sales and agreements with creditors.

Standing in the middle of this firestorm is Mr. Marin, a Wall Street veteran who spent 25 years at Bankers Trust, where he helped develop and build its derivative business.

When Mr. Marin joined Bear Stearns Asset Management four years ago, the unit was considered a sleepy backwater inside the bank, largely overlooked for faster growing, more profitable businesses.

“When I joined Bear, Bear had not run the business as aggressively as they wanted to. The way they put it to me was, ‘Bear wants to succeed in whatever it does and that includes asset management,’ ” Mr. Marin said yesterday.

He set a course to bolster the unit’s profit and its stature by shedding unprofitable businesses — like its retail mutual fund distribution arm — and focusing on adding products with richer fees, like hedge funds and structured credit securities for institutional and wealthy clients.

It is the same strategy undertaken by many Wall Street firms. But the crisis involving the two hedge funds, which nearly set off a broader sell-off in the market for mortgage-related securities, helps illustrate the potential risks Wall Street firms are increasingly willing to take to improve profit in their asset management arms.

“If you want to stay alive in the asset management business,” said Richard Bove, an analyst with Punk, Ziegel & Company, “you have to go into unique products and go out on the risk spectrum. You have to do the things that Bear Stearns did. Until as of late, the strategy was working out beautifully for them.”

Since Mr. Marin took over the Bear unit, assets under management have nearly doubled to $60 billion and revenue has risen 138 percent, to $332 million at the end of last year.

Taking risk was comfortable and familiar to Mr. Marin. The son of a career United Nations diplomat, Mr. Marin grew up all over the world before attending undergraduate and business school at Cornell in Ithaca, N.Y., in the early 1970s.

He joined Bankers Trust after business school. For the next 25 years, he helped create and establish the bank’s presence in several cutting-edge fields, including futures and options trading, emerging markets debt and derivatives.

Soon after joining the Bear unit in 2003, Mr. Marin devised a strategy that was known internally as “10 in 10.” He wanted the division’s profit to represent roughly 10 percent of Bear Stearns’s revenue and profit by 2010.

He was starting at a low base; the unit’s share of revenue in 2003 was about 1 percent. Its share of the company’s overall profit was even less.

Read the complete story http://www.nytimes.com/2007/06/28/business/28bear.html
 
We can't seem to escape Bear news nowadays. As a follow-up to this earlier article, the NYT todays reported that Richard Marin has been replaced as head of of Bear Stearns investment group. On the positive side, he will have more time to write his blog ;)

The investment bank Bear Stearns replaced the head of its asset management business today after two of the unit’s hedge funds almost collapsed after making bad bets on mortgage-related securities.

The meltdown of the hedge funds embarrassed Bear Stearns, widely known for its savvy in handling mortgage risk. The funds buckled on wrong-way bets tied to subprime loans, which are made to people with weak credit.

Bear said that Jeffrey B. Lane, a longtime senior executive at Lehman Brothers Holdings Inc. and Neuberger Berman Inc., would succeed Richard A. Marin as chairman and chief executive of Bear Stearns Asset Management.

Mr. Marin will remain as a senior adviser, the company said.

The chairman of Bear Stearns, James E. Cayne, said in a statement that the company’s focus was restoring investor confidence in its asset management business.

In a news release, Bear Stearns did not address the status of Ralph R. Cioffi, who managed the two troubled hedge funds. Bear Stearns did not return a telephone call seeking comment.

Bear Stearns said it would bail out only one of two struggling hedge funds, providing $1.6 billion of financing to save its High-Grade Structured Credit Strategies Fund. The other fund, which carried more leverage, has about $1.2 billion in debt that’s being worked out.
 
I know... and the news goes around so fast -- I got Bear's internal announcement this morning, then I was actually talking about this at lunch with a friend of mine who is a lawyer at Lehman, which had their internal announcement on the other side. I guess the finance world is really small no matter how big New York seems to be, right?!;)
 
My first thought on reading this was that the guy is wise to try to line up an alternative career as a writer. I don't imagine he has much of a future at Lehman after losing them $7bn by over-leveraging one temporarily smart bet.

Remember Henry Blodget? Failed Internet stock analyst, successful markets pundit. Funny old world.
 
My first thought on reading this was that the guy is wise to try to line up an alternative career as a writer. I don't imagine he has much of a future at Lehman after losing them $7bn by over-leveraging one temporarily smart bet.
Who you refers to, Steve ? Richard Marin ? Can you point me to some reading about the $7bn loss at Lehman ? thanks
Remember Henry Blodget? Failed Internet stock analyst, successful markets pundit. Funny old world.
Yeah, I remember him. He made his reputation with the prediction on the Amazon stock. Did himself a great service by appearing on the media OFTEN during that stock boom. There is always a second life after Wall Street ;)
 

Bastian Gross

German Mathquant
I guess, that every "Bush-President" want to make a bailout!

Georg W. Bush (jun.) and Paulson urged to let the Treasury use up to 700$ billion to buy some complex mortgage-related securities from some U.S.-financial institutions.

And Georg H. W. Bush (sen.) made an bailout about almost 200$ billion during the "savings and loan crisis" in 1989, when He signed the Financial Institutions Reform, Recovery and Enforcement Act of 1989, which radically reformed the savings and loan industry and some federal regulations.
 
SAN FRANCISCO (MarketWatch) -- Jurors found Ralph Cioffi and Matthew Tannin, two executives that ran hedge funds at Bear Stearns, not guilty on counts they lied to investors, according to media reports Tuesday. Both Cioffi and Tannin had been charged with three counts of securities fraud and two counts of wire fraud connected to a $1.6 billion hedge fund loss. J.P. Morgan Chase & Co. bought Bear Stearns at the height of the financial crisis.
 
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